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AT&T misses revenue estimates as pay-TV subscribers bleed away

(Reuters) - AT&T Inc's first-quarter revenue fell short of Wall Street estimates on Wednesday after it lost subscribers in nearly all of its main businesses except wireless, where it paid heavily to gain customers through price promotions.

AT&T lost a net 544,000 premium TV subscribers, a category that includes DirecTV satellite and U-verse television customers. Analysts had expected a loss of 385,000 customers across DirecTV and U-verse, according to research firm FactSet.

Pay-TV providers have struggled to keep customers as viewers move to streaming services like Netflix Inc. AT&T has launched its own streaming service, but that too lost customers in the quarter.

Total revenue for the quarter rose nearly 18 percent to $44.83 billion but fell short of expectations of $45.11 billion.

Revenue in AT&T's wireless business was hurt by aggressive smartphone promotions. The company has tried to reduce its dependency on its phone business, which now brings in roughly 40 percent of total operating revenue, by adding media content through its $85 billion acquisition of Time Warner.

"Altogether, AT&T's collection of assets remains challenged," Jonathan Chaplin, an analyst with New Street Research, said in a note on Wednesday. AT&T's business wireline segment saw declines in the top and bottom line, and even WarnerMedia trends "were just okay," Chaplin wrote.

AT&T's WarnerMedia unit, which includes Turner and premium TV channel HBO, reported revenue of $8.38 billion in the quarter, but that was short of analysts' estimates of $8.45 billion, according to IBES data from Refinitiv.

The company added a net 80,000 phone subscribers, beating analysts' forecast of a loss of 44,000 subscribers, as it leaned on the smartphone promotions to combat competition in a saturated U.S. market.

But Mobility, AT&T's largest segment and which includes its wireless business, had revenue of $17.57 billion during the quarter, missing estimates of $17.65 billion, as those promotions hurt revenue for the unit.

AT&T shares were down 3.9 percent at $30.84 on Wednesday.

Postpaid phone churn, or the rate of customer defections, was 0.93 percent during the first quarter, up from 0.84 percent in the previous year.

AT&T's entertainment segment, which includes satellite TV provider DirecTV, has been in continuous decline. Revenue from the segment fell nearly 1 percent to $11.33 billion.

AT&T also continued to lose subscribers for its DirecTV Now streaming service, which shed a net 83,000 customers during the quarter as viewers abandoned the service after their introductory price promotion plans ended.

"AT&T’s first-quarter earnings give a clear signal that the company is willing to compromise on growth in the short term as it struggles to cut its heavy load of debt," said Haris Anwar, senior analyst at Investing.com.

"And it's a wise thing to do considering the market is very concerned about the company’s balance-sheet risk."

PAYING DOWN DEBT

AT&T's Latin America segment had revenue of $1.7 billion during the quarter, down from $2 billion in the year-ago quarter. AT&T said the segment lost $551 million due to foreign exchange pressures.

The carrier has focused on paying down its debt after the purchase of Time Warner. The company paid off $2.3 billion during the first quarter, and net debt now stands at $169 billion.

On Tuesday, AT&T announced it would sell office space at Hudson Yards in New York City for $2.2 billion, which it plans to use to pay down debt.

AT&T previously received $1.43 billion by selling its stake in streaming service Hulu back to the company.

Verizon Communications Inc, an AT&T rival, raised its 2019 profit forecast and beat Wall Street estimates for quarterly profit on Tuesday, although it lost more phone subscribers than analysts had expected.

Net income attributable to AT&T fell to $4.1 billion, or 56 cents per share, from $4.66 billion, or 75 cents per share, a year earlier. Excluding items, the company earned 86 cents per share, in line with estimates.

(Reporting by Akanksha Rana in Bengaluru and Sheila Dang in New York; Editing by Meredith Mazzilli and Paul Simao)